Setting Incentives That Won’t Backfire On Your BusinessRead time: 4 minutes
Incentives and compensation plans are a core part of running a sales team.
They help attract talent to your organization while ensuring said talent actually does the work you hired them to do.
But setting the wrong incentives can backfire on your business – catastrophically.
Last week we talked about zombie pipeline and how it can kill your business.
We concluded that the only way to prevent an apocalypse of living-dead deals is to have an environment where your salespeople can close out opportunities risk-free.
But how do you do that?
It all comes down to how you measure the performance (and paychecks) of your sales team.
The Worst Way to Set Incentives
Set a goal and your salespeople will fight to hit it.
Sounds ideal, right? Here’s what that actually looks like if you don’t put enough thought into it…
If you incentivize meetings:
- Reps will spend time meeting with bad leads
- Result of the meetings won’t matter
- They may even log fake meetings
If you incentivize pipeline generation:
- Every meeting will become an opportunity
- The wrong people will enter your pipeline
- Resources get wasted on useless opps
If you incentivize win rates:
- Your sales cycle becomes artificially long because reps won’t take a loss
- Your win rates become artificially high (no visibility into the real number)
- Because bad opps are never closed out
When you incentivize your salespeople based on activities, they’ll find a way to game the system. It’s not their fault, it’s just human nature.
And if you try to create a tricky, “ungameable” system, you will fail.
One of the biggest culprits of zombie pipeline is an activity-based, incentivized contest. Even your most respectable sales rep is going to try and bend the rules for a chance to win the pot – filling your pipeline with terrible opps that you’ll have to weed out later.
What to Do Instead
John Wooden is regarded as the best basketball coach that ever lived. He was a master in developing talent in even the most unlikely players.
This is my favorite quote from him:
“Don’t confuse activity for achievement.”
It goes the same way for sales. Don’t confuse meetings booked or calls made for revenue generated.
Compensate based on achievement, not activity.
This will ensure:
- Simplicity. You don’t need more than three different levers. Keep compensation simple by offering a base pay plus commission on revenue generated, plus up to two other incentives based on sold business.
- Efficiency. When your comp plan is simple, your salespeople can easily grasp what will make them (and the company) the most money, helping them make better negotiating decisions.
- Quality. Your salespeople can focus their time on generating quality pipeline, shortening sales cycles, and closing better deals.
This can also mean building accelerators into your plan (giving an increased commission rate over a certain amount of quota hit).
Any other incentives you run should be tied to a specific business function – such as launching a new product or entering a new market – and paid out as a bonus to hitting quota.
The One Exception
Like most things in business and in life, there are exceptions to the rule.
Setting incentives for activities such as meetings booked, emails sent, and pipeline generated might make sense when you’re trying to instill good habits with people new to the job.
In the early stages of someone’s sales career, they haven’t yet grasped the skills of time management, staying focused, and reaching out to people, so they may need a push in the right direction.
Sales is a results-based business.
If you do everything right, but you don’t sell a thing, you’re not a very good salesperson. If you go against every best practice, but you sell a bunch, you’re a very good salesperson.
Keep your salespeople focused on the result, and you’re already doing better business.
- Compensate based on achievement (revenue generated), not activity (meetings, emails, pipeline generated, etc.)
- The one exception is when you’re trying to instill good habits in brand new salespeople during their ramp-up period
When you’re ready, here’s how we can help:
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